New savings plan could help student debt

By Jennifer R. Lloyd :
July 18, 2013

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Texas 529 plans

The Texas 529 College Savings Plan and LoneStar 529 Plan can be used at any accredited U.S. private university, public college or vocational school for qualified educational expenses.

The Texas Tuition Promise Fund pays for tuition and required fees at Texas public colleges. The accounts can be used at accredited private universities or out-of-state colleges, but the tuition and required fees are not locked-in as they would be for Texas public colleges.

Creating automatic child saving accounts at birth could propel students toward college and offer a solution to the country's financial aid woes, a new report released this week shows.

William Elliott, a University of Kansas associate professor and editor of the report, said the savings accounts would be similar to existing 529 college savings plans for public and private college costs.

However, they'd add features to engage youths in early saving for college, which may help the nation's economy by producing graduates with better financial futures.

The new concept to start savings accounts at birth, seed them with public money and public matching contributions could be part of the cure for the mounds of student debt being accrued by some, the report said.

Lengthy congressional efforts to reverse the doubling of interest rates on new subsidized federal Stafford loans to 6.8 percent — which took effect this month — may finally be headed toward a resolution. The U.S. Senate reached a compromise Wednesday that would tie interest rates to the market rates within limits, according to the Associated Press.

Beyond possible political hurdles to enacting the savings account idea, said Eyra Perez, the San Antonio Education Partnership's executive director, proposals that don't also address rising tuition costs will be incomplete.

Elliott said the report's key features — automatic enrollment at birth, publicly funded initial deposits for lower-income families, publicly funded matching contributions and allowing withdrawals for before or after college for education-related expenses — would help disadvantaged students.

The report suggests financing the program by spreading out federal Pell Grant funding as matching contributions rather than as an award when the student enrolls in college.

Texas has several 529 plans, which offer tax breaks beyond the typical savings account, according to the Texas comptroller's office. But Elliott said that in general, lower-income families don't enroll in 529 plans as often as the more affluent.